July 15 (Bloomberg) -- Hong Kong police seized documents
from Henderson Land Development Co. as part of an investigation
into collapsed luxury apartment sales. The shares fell.

Officials took the documents from a Henderson office and
invited “a number of people” to assist the investigation, the
police said in a faxed statement late yesterday, without
elaborating. Henderson, controlled by billionaire Lee Shau-kee,
is at the center of a government probe after 20 luxury unit
sales worth HK$2.67 billion ($343 million), including one it
claimed would have fetched a record price, fell through.

The raids on Henderson came a day after Chief Executive
Donald Tsang told lawmakers he will strengthen rules if needed
to regulate home sales. The government is facing an outcry amid
concerns about housing affordability in the former British
colony where home prices have surged 38 percent since the
beginning of 2009.

“It is hard to prove if anyone has criminal liability in
this case, but the government is sending out a clear warning
signal to the developers: please discipline yourself or I will
impose more restrictions on home sales,” said Raymond So, a
professor at the Chinese University of Hong Kong’s department of
finance.

Shares of Henderson fell 2.1 percent to HK$46.70 at the
close in Hong Kong. The stock is down 20 percent this year, the
worst performer among seven of the city’s biggest developers
tracked by the Hang Seng Property Index. The index lost 5.7
percent in 2010 and dropped 1.1 percent today.

Premature Conclusions

The investigation doesn’t impact the company’s operations
and it hopes the issue will be clarified “as soon as
possible,” Henderson said today in a statement to the Hong Kong
stock exchange. The developer welcomes the police probe and will
“fully cooperate” in providing information, it said.

“At this stage it’s really hard to tell what’s going to
come out from the investigation,” said Eddie Hui, a professor
at the building and real estate department of the Hong Kong
Polytechnic University. “Even if the police took some documents
from their office, it still doesn’t mean they’ve committed any
wrongdoing. We have to be careful in drawing any premature
conclusions.”

Henderson’s $500 million of 5.5 percent bonds due 2019 were
trading at 99.62 cents on the dollar to yield 5.552 percent as
of 4:12 p.m. in Hong Kong, down from 100.23 cents on the dollar
and a yield of 5.467 percent yesterday, according to Royal Bank
of Scotland Group Plc prices.

Denial

Henderson has repeatedly denied any wrongdoing in the way
it handled the transactions as the government has sought details
on the sale agreements after 20 of the 24 sales at 39 Conduit
Road in the Mid-Levels district on Hong Kong Island were
canceled. One of the aborted sales would have set a world record
price of HK$88,000 ($11,300) per square foot.

Nobody has been arrested in connection with the
investigation, Commissioner of Police Tang King-shing said in
comments broadcast on local television yesterday.

Officers from the police commercial crime bureau also took
documents from a law firm related to the transactions, the
English-language South China Morning Post reported today,
without citing anyone. Police spokesman Horace Chan declined
today to confirm whether they had raided a law firm.

“A raid on a law firm is very unusual,” said Nick Gall, a
partner at Hong Kong law firm Gall & Lane. “They could be
looking to get a sense of the identity of these buyers and
whether they were connected to Henderson Land. Henderson is a
long-established company in Hong Kong with a good reputation. I
don’t see the government would lightly raid a law firm.”

Special Meeting

“The company strongly rejects” allegations that there
have been irregularities in the sale of the apartments, it said
in a statement published in the English-language South China
Morning Post newspaper this week.

The city’s lawmakers July 12 held a special session in
parliament to discuss the transactions. The developer declined
to attend the meeting.

“This is a very high-profile case involving one of the
biggest and richest companies in Hong Kong,” said James To, a
Democrat Party legislator. “It goes without saying the police
are being extra-cautious in handling the case. The fact that
they were able to obtain the search warrant from the Department
of Justice means they have some reasons to believe there are
wrongdoings.

“Having said that we have to bear in mind there’s a big
difference between seizing documents from their office and
having enough evidence to formally prosecute them for any
criminal activities.”

New Rules

The developer said June 16 it has sold four of the units at
39 Conduit Road and will record a charge of HK$734 million in
its half-year results.

The government in June introduced nine rules on new home
sales, including the use of walk-through models of apartments,
known as show flats, that developers use to entice buyers before
a building is completed. Hong Kong last year raised down-payments on luxury homes to 40 percent from 30 percent and
clamped down on marketing techniques.